I don't make a habit of agreeing with politicians, but this is the exception – the real estate market HAS been far too overheated in recent years. It's just not sustainable any longer. That may mean that some people brand me as a pessimist. But, quite the contrary, I'm optimistic that the market will return to more realistic and reasonable levels.
CAAMP, and the industry as whole, really needs to re-evaluate its mission in Ottawa in regards to getting the government to change course on its tighter mortgage rules. I don’t think it’ll be doing the broker industry justice if it pushes for a turnaround of the current lending policies. I don’t buy the arguments. For instance, homebuyers were shut out of the market due to skyrocketing home values brought about by low interest rates and previously lax mortgage rules. So, it's not the rule changes that locked people out of the market; it's that the prices are so out of control that a 20 per cent down payment seems so high.
Rather than calling for policies that will provide only short-term growth for the mortgage industry, CAAMP and brokers should be more proactive in educating consumers on how to avoid accumulating “irresponsible” debts. In essence, we had to rip off the Band-Aid. It was something that had to be done, whether or not it hurts.
Even the Bank of Canada concedes that rates are too low, at unsustainable levels, and that they have artificially inflated the economy and the housing market because of the easy access to money. As I said many times already: cheap, easy access to credit is a big stimulus that many people will take advantage of. That's why our debt-to-income ratio is at 164 per cent -- the highest ever, I might add.
Clearly there's a problem, and the mortgage rule change was the best option to slow debt growth without pushing people out of their homes. If you have a better solution, I'd like to hear it. I admit that a lax mortgage environment wasn’t the only reason for all of our issues, but it certainly was a big one.
Rates started falling in the late 90s and, if you check the Toronto Real Estate Board stats, you'll see that sales, which were already on an upswing, accelerated. Not to mention, if easy access to cheap borrowed money wasn't a major driver, then the rule changes wouldn't have had this effect.
Supply and demand IS important, but the fact is if people don't have the money, or access to credit, they simply can't afford it. Housing prices were getting out of control, and the fourth round of mortgage rule changes are helping to bring them more in line.
About the writer:
Paolo Di Petta, a mortgage agent in the Greater Toronto Area and Southern Ontario, specializes in private lending. Having completed the Ontario Real Estate Association pre-registration courses, he is now working towards a real estate salesperson license.